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But the objective of farm policy is not just to maintain a minimum wage for farmers, but rather to bring their income closer to parity with the income of other Americans. Obviously, the overwhelming majority of nonfarm workers earn much more than the $1 an hour minimum wage.
These facts, which were obtained from reports of the USDA and our own research department, show clearly that the farmers of America are in serious trouble.
The economic squeeze in agriculture is rapidly eliminating the family-size farms of our Nation. Last year, according to USDA estimates, 100,000 families moved off the land. It is our estimation that probably 300,000 more will be forced to leave this year. Unless prompt action is taken by Congress, more will be forced out next year; and we shall wind up with most of the farmland of the United States being owned and operated by a comparatively few people. About all who will remain in agriculture will be farm managers, and the few mechanicas and workers required to operate the machinery and perform the hand labor tasks for absentee owners of large tracts of land.
It is clear to me that we have reached the point in this migration beyond which we should not go. A continuation of this trend will endanger our whole society. The farm problem involves social and political, as well as economic elements. What will be the effect, and how far reaching, on our American way of life, if we allow millions of people to lose their visible stake in our economic system?
American democracy has always had one of its safest anchorages in the myriad of farm homes that dot this land from the Atlantic to the Pacific. The God-fearing, freedom-loving people who dwell in those homes are doing the work of their own choosing, getting satisfaction from raising good crops in soil that they can pridefully call their own. Traditionally conservative and slow to adopt radical ideas, our farmers have always been important stabilizers. Do the people of America dare permit their liquidation through sheer neglect?
There is much argument these days about 90 percent versus flexible supports as a means of solving our problem. If we in Missouri had to make a choice between the two, we would certainly take the old 90 percent support plan, with whatever shortcomings it may have, in preference to the new flexible plan.
The 90 percent support plan has by no means been a failure, as some people contend. Under it, prices of the supported 6 basic commodities declined only one-half of one percent between the 1947–49 average and September 15, this year. Prices of unsupported commodities and those with flexible supports declined 17 percent during the same period. We are convinced that had it not been for the supports on the basic commodities, farm prices generally would have gone even lower than they have.
As to the flexible plan, we knew from having witnessed what happened during the depression years in the 1930's that it would work to the benefit of farmers, as its advocates claimed it would. It was supposed to bring about curtailed production on the one hand and increased consumption on the other, as a result of lower farm prices. Back in the 1930's farmers were compelled by low farm prices to produce more in order to meet fixed costs. The memory of that experience stayed in my mind; and on March 24, 1954, I appeared before your committee in Washington and forecast failure of the flexible supports plan. On that occasion I told this committee:
We of the Missouri Farmers Association do not believe that the administration's proposed flexible price support program will attain the desired objectives of a sound farm program or solve the economic problems of agriculture. In fact, we strongly believe that the only result of the adoption of such a program would be to further lower the standard of living for farm people.
Subsequent events have proved that our position was correct. At the hearing, I said:
A flexible price-support program is based on two premises : First, that production will be controlled voluntarily by farmers when the prices farmers receive for their products are lower, and second, that lower farm prices will mean increased consumption of the products of agriculture. We contend that both of these premises are false. If these premises are not true, then the whole case for a dexible price-support program falls.
The theory that lower farm prices will reduce production of farm products has never been proved. Historically, agricultural production has never reacted in that way. Farmers with fixed interest and other costs had to produce more during the awful depression of the thirties. They had to farm horizontally, mine the soil, and use up their capital in order to eke out a subsistence for themselves and their families.
The fact that agriculture seems to be one industry where production increases when price declines can be attributed to several factors.
Farmers need a certain number of dollars in order for them to hang onto their farms, to meet their fixed minimum-production costs, and maintain a living for themselves and their families. If a farmer cannot hang onto his farm and meet his production and living costs with the prices received for the products he is presently producing, his only alternative is to increase his production.
For example, farmers today-like wage earners—have fixed expenses. If a dairyman can meet such fixed expenses as feed, equipment, taxes, lights, telephone, and others, with the production of milk priced at 90 percent of parity, what will he do if the price of milk is lowered to 75 percent of parity? With no decrease in fixed expenses, he must increase milk production to compensate for the reduced price.
On April 1 that year Secretary Benson reduced the price on milk to 75 percent of parity. Today milk production is still high, and there has been no important increase in per capita consumption.
The second false premise on which a flexible price-support program is based is that consumption of farm products will increase when the prices received by farmers for their products decline.
Increased consumption cannot be expected in any large degree by a general lowering of farm prices. Reducing prices to farmers for their products will not increase consumption materially. For one thing, variations in prices of farm products reflect themselves in consumer costs only to a very small degree.
Here is an example: A 20-cent loaf of bread contains about 3 cents worth of wheat. If the price of wheat is flexed down by 35 cents per bushel, or say 15 percent, the value of wheat in the loaf decreases only by about ho of a cent. The baker cannot cut the price of bread by ho of a cent and charge 19.6 cents, and even if he could, no consumer would eat more.
A decrease in the farmers' return for the nonfąt portion of the milk would have no effect upon the price paid by the consumers at all, because the primary user of nonfat milk solids is the baking industry, and the quantity of such products used in a loaf of bread would be so small that a price variations of that ingredient, either up or down, for farmers, could not be reflected in the price paid by consumers for bread.
The same may be said for cotton. Cotton goods also fail to respond to lower prices unless they are extremely low. Say a cotton shirt sells for $3, having 15 percent or 45 cents worth of raw cotton in it. Dropping the price of cotton 5 cents per pound, or 15 percent, would lower the price of a shirt by only 7 cents. No more shirts would be sold, but cotton growers would lose $350 million in gross cash income; and the equivalent of 100,000 jobs in industries producing machinery and other industrial products for farmers would be jeopardized or lost.
Moreover, under the flexible plan, the surplus-in-storage problem will not be solved, because farmers will keep on producing. Farmers have produced about the same amount of wheat each year since 1900, for example, and the price has ranged from 30 cents to $3 per bushel during that time. About as much surplus wheat will go into storage as 75 percent of parity as it did when we had 90 percent of parity supports. Landowners, whether big or little, must keep on producing to meet fixed costs, and as I see it, the flexible plan can only aggravate our condition in agriculture.
Getting back to the 90 percent of parity support program, its chief trouble has been that not enough has been done to encourage the consumption of surpluses. And, incidentally, I see little chance of our being able to export them.
Another weakness in that program has been that it deals with the farm problem commodity by commodity. This procedure has had the effect of throwing our production out of balance. For example, restrictions on the production of cotton and corn have caused stimulation in the production of soybeans, and that crop is beginning to give us trouble. The same is true of other grain crops, such as barley, oats, sorghums, et cetera. We feel that this difficulty will exist so long as the farm problem is dealt with piecemeal by separate commodities instead of as a whole.
What is needed in the way of a farm program is legislation that will provide means by which we can live with abundance in agriculture.
Industry can regulate output to insure good prices; but 51/2 million farmers cannot do this. Besides, scarcity created for the purpose of forcing up prices is not good for the people, either in or outside agriculture; and city people will likely always complain about it.
We must have national legislation that will permit farmers to produce abundantly; legislation that will enable them to receive parity for their products. Then they will be in a position to maintain their soil fertility, keep their facilities in proper condition, and continue to produce plenty for all. This will be good for farmers; and it will be good for non farm people who like to eat well at reasonable prices.
Actually, the whole farm problem is relatively simple. We have been producing a small surplus which depresses the price of the whole production down to a point where farm families cannot stay in business.
The problem is relatively simple. We have been producing a small surplus which depresses the price of the whole production down to a point where farm families cannot stay in business.
The problem is, How can we get our surpluses consumed by those Americans who need them most? The starting point of a farm policy should be better farm prices through expanded consumption, rather than through curtailed production to make farm products scarce in order to force up price.
Our farm surpluses are relatively small. For all of the 8 years from 1946 through 1954, the average annual surplus for all farm products lumped together was only about 1.6 percent of annual production, with an excess of production in 5 of those years and a deficiency in the other 3. During the most recent 3 years, from 1951 through 1954, the average surplus was about 3 percent, with a high of 4.2 percent in 1953, and a low of 2.1 percent in 1954. It is too early to obtain figures for 1955, but it will probably be in the neighborhood of 2 to 3 percent.
And yet, as I have pointed out and as most people in agriculture know, these relatively small surpluses are what cause all the trouble and account for the so-called farm problem.
Thus, the remedy for our economic ills is to get the small surpluses consumed. If they can be consumed, the result will be that farm prices will rise to approximately 100 percent of parity in the market. And it will be much simpler and probably less expensive in the long run, to get our surpluses consumed than to cut acreage, commodity by commodity, in an attempt to prevent surpluses. Actually, it will amount to an investment rather than an expense, because a healthy agriculture and the resultant improvement of our economy will mean a better tax base for our Government.
It is our belief that two measures can be taken by the Congress which will effectively deal with the entire problem to the benefit of agriculture and the people in general.
One is through a production payment plan which would provide the equivalent of parity prices to farmers on a fixed gross sale of products.
The second, which should be an adjunct to the first, is a food-stamp plan, whereby our surplus perishable products could be consumed by schoolchildren and by low income groups.
Since we believe strongly that the family-size farm should be preserved for the benefit of our society, we believe that a limit should be set on gross sales of farm products for which parity prices are to be provided. Any production above that limit should be allowed to compete in the market place for its prices. We believe the limit for gross sales or income should be $6,000, which for most farmers would provide a net income of $2,000.' This is certainly modest enough.
The CHAIRMAN. Who would keep those records to determine the income of individual farmers? Would he do that himself?
Mr. HEINKEL. He would have to furnish the records.
Mr. HEINKEL. I don't think it would entail so much when you use this parity ratio factor.
The CHAIRMAN. You would have to make every farmer a bookkeeper to find out how much he got.
Mr. HEINKEL. Senator, we have to be bookkeepers anyhow because we have to keep a few records.
The CHAIRMAN. I thought I would point out some of the problems.
Mr. HEINKEL. The plan would operate as follows: First, the Secretary of Agriculture would determine at the end of the year the parity ratio for the preceding year and the percentage increase in gross incomes of farmers which would have resulted if prices of farm products had been at 100 percent of parity. For example, the parity ratio for 1954 was 89. Hence, gross farm incomes would have been 12.4 percent greater if farmers had received parity prices for their products in 1954. The following table illustrates how this would work out.
(The table referred to follows :)
Effect on farmers of providing them parity prices on their 18t $6,000 of gross
income in 1954 when the parity ratio was 89*
I With the parity ratio at 89, gross incomes would have to be increased 12.4 percent to bring them to the level required for parity prices.
Mr. HEINKEL: The Secretary of Agriculture would direct the agricultural stabilization and conservation committee in each State to pay each farmer, upon application, a production payment equal to the percentage of gross sales necessary to provide the equivalent of parity prices on his sales, which would have been 12.4 percent in 1954. Farmers with $6,000 or less of gross sales would receive the payment on all sales or gross receipts. Farmers whose gross income from farming was in excess of $6,000 would receive the production payment on only $6,000 of that income. A part-time farmer would also receive a production payment on his gross income from farming if his total gross income from farm and nonfarm sources was less than $6,000.
With his application the farmer would be required to file a statement of his receipts from farming and of his nonfarm income with the ASC committee. From these statements the committee would be able to compute the production payments.
Under this plan a farmer would receive a production payment in line with the production of his farm, and payments to large farmers would be no greater than those to operators of medium-size family farms. All would be treated alike, and large farmers would not receive the lion's share of the payments. Also, farmers would be permitted a free choice in their production.
As nearly as can be determined from available information, about three-fourths of all farmers, and two-thirds of the so-called “commercial" farmers, receive less than $6,000 of gross income from sale of products. This accounts for about 22.5 percent of the total receipts of all farmers. The remainder of the farmers whose production payments would be on $6,000 of gross receipts would receive such payments on another 27.5 percent of the total gross income of farmers.
The production payments would therefore be made to all farmers and on about 50 percent of the total farm marketing. The other 50 percent of marketings would not receive supports. With production payments at 12.4 percent of gross income, such payments would have amounted to about $1.9 billion in 1954.
Consumers would certainly be better off under such a program than under either the 90 percent or the flexible-support plan, because they would be assured of plentiful and constant supplies of reasonably priced foods. There would be no such thing as scarcity and high prices of a commodity one year and abundance
and low prices another, except in cases of widespread drought or floods.
of course, when consumption catches up with production of farm products, as it inevitably will sometime in the future, and farm prices